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Policy rate peaked near 22%
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Inflation peaked at 38% (May 2023)
The Result
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Inflation fell largely after global commodities cooled
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High rates did not neutralize supply shocks
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They did:
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Raise government borrowing costs
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Crowd out private investment
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Inflate domestic debt servicing
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Compress equity valuations on PSX
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Analytical conclusion:
Monetary tightening treated symptoms while deepening the fiscal disease.
Why IMF Programs Move PSX — But Don’t Fix the Problem
Pakistan has entered 23+ IMF programs since 1958. Only about nine were completed fully.
Short-Term Market Effect
IMF announcements usually:
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Stabilize reserves
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Reduce default probability
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Anchor FX expectations
Markets rally because tail risk collapses.
A notable example:
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June 2023 SBA → KSE-100 surged ~5.9% in one day, the biggest in 15 years, followed by ~20% gains over the quarter.
Long-Term Reality
Over time:
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Austerity suppresses growth
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Higher taxes meet rigid spending
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Earnings struggle to compound
Empirical findings you cited show mixed to negative long-term equity effects, depending on global conditions and political execution.
Key insight: IMF programs buy time, not governance.
As you framed it bluntly:
IMF programs end only when governance begins.
What PSX Is Actually Pricing (And What It Ignores)
The Pakistan Stock Exchange is not reacting to slogans. It is reacting to constraints.
PSX Cares About:
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Interest-rate trajectory
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FX stability
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Liquidity mechanics (e.g., T+1 settlement)
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Sector cash flows
PSX Ignores:
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Headline tax targets
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Moral speeches about austerity
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Cosmetic reforms without execution
This is why:
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PSX can rally during economic stress
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PSX falls when debt servicing dominates budgets
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Valuations compress even with “record tax collection”
Debt, Liquidity, and Market Microstructure: Why This Matters Now
Interest Rates and Fiscal Arithmetic
As discussed in your threads:
